Networks drag Nokia sales

Andrew McLindon: Mobile phone maker Nokia said hardship in its networks unit resulted in lower first quarter sales, with second quarter results not expected to be any better.
Nokia said on Thursday that pro-forma net sales in the first quarter of 2003 were down 3 percent on the same quarter a year ago to EUR6.77 billion. Nokia said the fall reflected the "continuing weakness" of the company's network infrastructure business.

Nokia Networks suffered a 15 percent drop in pro-forma net sales from Q1 2002 to USD1.22 billion in Q1 2003. The division also posted a pro-forma operating loss of USD127 million, compared to a profit of USD146 million in the same quarter a year ago. Nokia said this poor performance was due to lower sales volumes and high costs related to first-phase 3G implementations.

Nokia Networks, which produces the infrastructure equipment necessary to build a mobile phone network, has been struggling for some time and for the full-year of 2002 saw its sales decline by 13 percent. Nokia said in January that it expected the overall market to contract by a further 5 percent to 10 percent during 2003.

The company has reacted to this by promising to slash costs and increase profitability in the division. In February, it announced plans to reduce the number of its global R&D sites in a move that will reduce employee numbers by 550 and in April it said it would cut the Networks' workforce by a further 1,800. The company said it might have to eliminate more jobs in the second quarter.

Nokia said the announced moves would result in the company taking a charge of between EUR350 million to EUR400 million in the second quarter as part of normal operating expenses, which would negatively impact on its pro-forma and reported operating profit. As such, it said it expected pro-forma diluted earnings per share in the second quarter to be between EUR0.13 and EUR0.16. Pro-forma diluted EPS in Q1 2003 was EUR0.18.

Nokia did receive better news with the continued turnaround in its mobile phone division. Sales there were up 1 percent from the year-ago quarter to EUR5.48 billion. Sales of handsets had been sluggish in 2001, but bounced back in 2002 and this recovery appears to be continuing in 2003.

The Finnish firm said that overall mobile phone market volumes in the quarter grew year-on-year by 10 percent with Nokia's own volumes up by 13 percent to around 38 million units. Nokia claimed to have 38 percent of the entire market in Q1 2003. Total market growth in 2003 of approximately 10 percent is expected and Nokia said it should outstrip such growth for the year.

Pro-forma operating profit in the quarter at its mobile phone division was up 9 percent from the same period a year ago to USD1.31 billion.

"With this strong performance from mobile phones, we succeeded in substantially reducing the impact of difficult operating conditions in our network infrastructure business," said Chief Executive Jorma Ollila in a statement.

Overall, Nokia reported a pro-forma operating profit of EUR1.19 billion, which was down 8 percent on the year-ago quarter. This included a gain of EUR56 million from the sales of its remaining shares in Nokian Tyres. Pro-forma net profit fell by 6 percent to EUR860 million during the first quarter.